The World Bank and the International Finance Corporation have sent a blunt message to the world in their latest Doing Business report: the top priority, it says, is the need to create a favorable environment for small companies. For the first time in its 10 years of existence, the report focuses on conditions for them. And, in a clear sign that this business segment is crossing borders more frequently, the report provides a guide par excellence for those establishing operations outside of their home territory.
Small businesses in the United States (those with fewer than 500 employees) are not ignorant of this trend. On the contrary, they are setting the pace on globalization of aspects such as the penetration of small foreign businesses in Latin America--a process that is strengthening, with broad and growing potential.
The proliferation of free trade agreements with countries within the region is the main reason behind this dynamic. The North American Free Trade Agreement, which unites Mexico with the United States and Canada, is responsible for a large part of the transnational operations of small American businesses in Latin America. Nafta facilitates commercial operations between the United States and Mexico--a country which, in addition to its geographic proximity, constitutes the second most important Latin American market after Brazil.
Broadly speaking, trade agreements with Latin America have boosted the performances of small U.S. businesses, but have also been helped by other accords, such as those of mutual recognition, bilateral investment treaties, framework agreements for trade and investment, and the agreements of the World Trade Organization. 'These translate into advantages that include tariff reductions, the reduction or elimination of non-tariff barriers, better access to markets, easier interaction with customs, facilitation of trade, protection of intellectual property, a more efficient and transparent regulatory environment and mechanisms for conflict resolution.
In addition to the purely commercial elements, in the opinion of Juan Pablo Cuevas, director of Bank of America's global transaction services for Latin America and the Caribbean, the determining factor for the greater presence of U.S. middle market companies in Latin America is: the displacement of China. For Cuevas, over the past 10 years, there has been an obvious increase in the number of U.S. middle market companies in Latin America that are responding to the redirection of investment that many large American companies made in China. These were a consequence of the smaller incentives the Asian giant offers today as part of its process of transition into a more developed economy.
"To take advantage of the commercial ties established more than 20 years ago--before so many companies moved their operations from the United States to China--middle market companies from all over the United States have been buying companies valued at between $30 million and $50 million in Latin America. They were improved by their knowledge and technology...